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Validus Announces Third Quarter 2012 Net Operating Income Of $170.6 Million, Diluted Book Value Growth Of 14.7% Year To Date Inclusive Of Dividends

This conference call will also be available through a live audio webcast accessible through the Investor Relations section of the Company's website located at www.validusholdings.com. A replay of the webcast will be available at the Investor Relations section of the Company's website through November 9, 2012. In addition, a financial supplement relating to the Company's financial results for the three and nine months ended September 30, 2012 is available in the Investor Relations section of the Company's website.

About Validus Holdings, Ltd.

Validus Holdings, Ltd. is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus Reinsurance, Ltd. and Talbot Holdings Ltd. Validus Re is a Bermuda based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily operating within the Lloyd's insurance market through Syndicate 1183.

Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2012 (unaudited) and December 31, 2011

(Expressed in thousands of U.S. dollars, except share and per share information)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

Three Months Ended September 30,

Nine Months Ended September 30,

(unaudited)

(unaudited)

2012

2011

2012

2011

Underwriting income

Gross premiums written

$

390,215

$

391,129

$

1,854,593

$

1,846,412

Reinsurance premiums ceded

(45,743

)

(30,586

)

(271,847

)

(272,752

)

Net premiums written

344,472

360,543

1,582,746

1,573,660

Change in unearned premiums

130,632

98,081

(208,816

)

(259,863

)

Net premiums earned

475,104

458,624

1,373,930

1,313,797

Underwriting deductions

Losses and loss expenses

155,455

226,067

541,136

909,572

Policy acquisition costs

98,623

77,405

252,884

232,931

General and administrative expenses

70,547

35,926

198,557

145,244

Share compensation expenses

7,345

7,382

19,583

27,059

Total underwriting deductions

331,970

346,780

1,012,160

1,314,806

Underwriting income (loss)

$

143,134

$

111,844

$

361,770

$

(1,009

)

Net investment income

25,489

27,747

79,134

84,216

Other income

7,324

—

22,209

2,201

Finance expenses

(9,362

)

(10,935

)

(39,347

)

(41,297

)

Operating income before taxes and income from operating affiliates

$

166,585

$

128,656

$

423,766

$

44,111

Tax (expense)

(1,343

)

(2,538

)

(1,886

)

(1,050

)

Income from operating affiliates

6,235

—

13,194

—

Net operating income

$

171,477

$

126,118

$

435,074

$

43,061

Net realized gains on investments

9,063

5,246

22,749

23,177

Net unrealized gains (losses) on investments

86,345

(27,848

)

53,442

(22,150

)

(Loss) from investment affiliate

(160

)

—

(558

)

—

Foreign exchange gains (losses)

1,103

(19,932

)

3,617

(22,390

)

Transaction expenses (a)

(3,784

)

(13,583

)

(3,784

)

(13,583

)

Net income

$

264,044

$

70,001

$

510,540

$

8,115

Net (income) attributable to noncontrolling interest

(56,746

)

(13,516

)

(11,386

)

(14,110

)

Net income (loss) available (attributable) to Validus

$

207,298

$

56,485

$

499,154

$

(5,995

)

Selected ratios:

Net premiums written / Gross premiums written

88.3

%

92.2

%

85.3

%

85.2

%

Losses and loss expenses

32.7

%

49.3

%

39.4

%

69.2

%

Policy acquisition costs

20.8

%

16.9

%

18.4

%

17.7

%

General and administrative expenses

16.4

%

9.4

%

15.9

%

13.1

%

Expense ratio

37.2

%

26.3

%

34.3

%

30.8

%

Combined ratio

69.9

%

75.6

%

73.7

%

100.0

%

(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

Three Months Ended September 30,

Nine Months Ended September 30,

(unaudited)

(unaudited)

2012

2011

2012

2011

Validus Re

Gross premiums written

$

145,010

$

163,863

$

1,052,726

$

1,058,642

Reinsurance premiums ceded

(10,426

)

(5,646

)

(137,504

)

(150,669

)

Net premiums written

134,584

158,217

915,222

907,973

Change in unearned premiums

107,728

81,997

(177,215

)

(194,529

)

Net premiums earned

242,312

240,214

738,007

713,444

Losses and loss expenses

66,890

128,823

244,286

533,402

Policy acquisition costs

37,785

40,592

113,659

115,355

General and administrative expenses

16,938

7,358

48,332

32,947

Share compensation expenses

2,076

2,190

5,914

7,118

Total underwriting deductions

123,689

178,963

412,191

688,822

Underwriting income

118,623

61,251

325,816

24,622

AlphaCat

Gross premiums written

$

2,934

$

18,940

$

21,607

$

77,050

Reinsurance premiums ceded

—

—

—

—

Net premiums written

2,934

18,940

21,607

77,050

Change in unearned premiums

2,591

8,758

(9,832

)

(37,595

)

Net premiums earned

5,525

27,698

11,775

39,455

Losses and loss expenses

—

—

—

—

Policy acquisition costs

547

3,326

1,185

4,615

General and administrative expenses

2,087

2,167

5,521

4,122

Share compensation expenses

84

26

195

74

Total underwriting deductions

2,718

5,519

6,901

8,811

Underwriting income

2,807

22,179

4,874

30,644

Talbot

Gross premiums written

$

260,755

$

238,937

$

837,536

$

778,880

Reinsurance premiums ceded

(53,801

)

(55,551

)

(191,619

)

(190,243

)

Net premiums written

206,954

183,386

645,917

588,637

Change in unearned premiums

20,313

7,326

(21,769

)

(27,739

)

Net premiums earned

227,267

190,712

624,148

560,898

Losses and loss expenses

88,565

97,244

296,850

376,170

Policy acquisition costs

61,640

36,651

142,181

116,174

General and administrative expenses

36,605

21,745

100,910

82,396

Share compensation expenses

2,200

1,903

5,347

6,648

Total underwriting deductions

189,010

157,543

545,288

581,388

Underwriting income (loss)

38,257

33,169

78,860

(20,490

)

Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

Three Months Ended September 30,

Nine Months Ended September 30,

(unaudited)

(unaudited)

2012

2011

2012

2011

Corporate & Eliminations

Gross premiums written

$

(18,484

)

$

(30,611

)

$

(57,276

)

$

(68,160

)

Reinsurance premiums ceded

18,484

30,611

57,276

68,160

Net premiums written

—

—

—

—

Change in unearned premiums

—

—

—

—

Net premiums earned

—

—

—

—

Losses and loss expenses

—

—

—

—

Policy acquisition costs

(1,349

)

(3,164

)

(4,141

)

(3,213

)

General and administrative expenses

14,917

4,656

43,794

25,779

Share compensation expenses

2,985

3,263

8,127

13,219

Total underwriting deductions

16,553

4,755

47,780

35,785

Underwriting (loss)

(16,553

)

(4,755

)

(47,780

)

(35,785

)

Total underwriting income (loss)

$

143,134

$

111,844

$

361,770

$

(1,009

)

Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Managed Gross Premiums Written

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

Three Months Ended

Nine Months Ended

(unaudited)

(unaudited)

September 30,

September 30,

September 30,

September 30,

2012

2011(a)

2012

2011(a)

Total gross premiums written

$

390,215

$

391,129

$

1,854,593

$

1,846,412

Adjustments for:

Gross premiums written on behalf of AlphaCat Re 2011

7,604

—

94,309

—

Gross premiums written on behalf of AlphaCat Re 2012

1,658

—

32,216

—

Total managed gross premiums written

$

399,477

$

391,129

$

1,981,118

$

1,846,412

(a) Total gross premiums written for the three and nine months ended September 30, 2011 included $18.8 million and $61.4 million, respectively, of gross premiums written from AlphaCat Re 2011, which was a consolidated subsidiary during the three months ended June 30, September 30 and December 31, 2011. The balance sheet of AlphaCat Re 2011 was deconsolidated as at December 31, 2011.

Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Net Operating Income (Loss), Net Operating Income (Loss) per share,

and Annualized Net Operating Return on Average Equity

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

Three Months Ended

Nine Months Ended

(unaudited)

(unaudited)

September 30,

September 30,

September 30,

September 30,

2012

2011

2012

2011

Net income (loss) available (attributable) to Validus

$

207,298

$

56,485

$

499,154

$

(5,995

)

Adjustments for:

Net realized (gains) on investments

(9,063

)

(5,246

)

(22,749

)

(23,177

)

Net unrealized (gains) losses on investments

(86,345

)

27,848

(53,442

)

22,150

Loss from investment affiliate

160

—

558

—

Foreign exchange (gains) losses

(1,103

)

19,932

(3,617

)

22,390

Transaction expenses (a)

3,784

13,583

3,784

13,583

Net income attributable to noncontrolling interest

55,821

—

10,940

—

Net operating income available to Validus

170,552

112,602

434,628

28,951

Less: Dividends and distributions declared on outstanding warrants

(1,663

)

(1,966

)

(5,121

)

(5,916

)

Net operating income available to Validus, adjusted

$

168,889

$

110,636

$

429,507

$

23,035

Net income (loss) per share available (attributable) to Validus - diluted

$

2.11

$

0.54

$

4.88

$

(0.12

)

Adjustments for:

Net realized (gains) on investments

(0.09

)

(0.04

)

(0.22

)

(0.22

)

Net unrealized (gains) losses on investments

(0.88

)

0.27

(0.52

)

0.22

Loss from investment affiliate

—

—

—

—

Foreign exchange (gains) losses

(0.01

)

0.19

(0.04

)

0.22

Transaction expenses (a)

0.04

0.13

0.04

0.13

Net income attributable to noncontrolling interest

0.57

—

0.11

—

Net operating income per share available (attributable) to Validus - diluted

$

1.74

$

1.09

$

4.25

$

0.23

Weighted average number of common shares and common share equivalents

98,236,490

103,482,263

102,333,515

100,796,280

Average shareholders' equity available to Validus

$

3,555,844

$

3,426,093

$

3,524,906

$

3,418,085

Annualized net operating return on average equity

19.2

%

13.1

%

16.4

%

1.1

%

(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Book Value and Diluted Book Value per Common Share

As at September 30, 2012 (unaudited) and December 31, 2011

(Expressed in thousands of U.S. dollars, except share and per share information)

As at September 30, 2012

(unaudited)

Equity Amount

Shares

Exercise Price

Book Value Per Share

Book value per common share

Total shareholders' equity available to Validus

$

3,633,853

93,494,391

$

38.87

Diluted book value per common share

Total shareholders' equity available to Validus

3,633,853

93,494,391

Assumed exercise of outstanding warrants

116,822

6,652,550

$

17.56

Assumed exercise of outstanding stock options

37,745

1,823,947

$

20.69

Unvested restricted shares

—

2,468,053

Diluted book value per common share

$

3,788,420

104,438,941

$

36.27

As at December 31, 2011

Equity Amount

Shares

Exercise Price

Book Value Per Share

Book value per common share

Total shareholders' equity available to Validus

$

3,448,425

99,471,080

$

34.67

Diluted book value per common share

Total shareholders' equity available to Validus

3,448,425

99,471,080

Assumed exercise of outstanding warrants

121,445

6,916,677

$

17.56

Assumed exercise of outstanding stock options

45,530

2,263,012

$

20.12

Unvested restricted shares

—

3,340,729

Diluted book value per common share

$

3,615,400

111,991,498

$

32.28

Cautionary Note Regarding Forward-Looking Statements

This press release may include forward-looking statements, both with respect to the Company and its industry, that reflect our current views with respect to future events and financial performance. Statements that include the words "expect", "intend", "plan", "believe", "project", "anticipate", "will", "may" and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond the Company's control. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. We believe that these factors include, but are not limited to, the following: 1) unpredictability and severity of catastrophic events; 2) rating agency actions; 3) adequacy of Validus' risk management and loss limitation methods; 4) cyclicality of demand and pricing in the insurance and reinsurance markets; 5) statutory or regulatory developments including tax policy, reinsurance and other regulatory matters; 6) Validus' ability to implement its business strategy during "soft" as well as "hard" markets; 7) adequacy of Validus' loss reserves; 8) continued availability of capital and financing; 9) retention of key personnel; 10) competition; 11) potential loss of business from one or more major insurance or reinsurance brokers; 12) Validus' ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 13) general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 14) the integration of businesses Validus may acquire or new business ventures Validus may start; 15) the effect on Validus' investment portfolios of changing financial market conditions including inflation, interest rates, liquidity and other factors; 16) acts of terrorism or outbreak of war; and 17) availability of reinsurance and retrocessional coverage, as well as management's response to any of the aforementioned factors.